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Another Case for Immigration Reform

James Pethokoukis as some thoughts on human population decline at AEIdeas. The thrust of his piece is a study that indicates that the human population on Earth will begin to decline in absolute numbers around 2055, just a scant 40-ish years from now—two generations—our grandchildren’s generation or thereabouts. He quotes Demographer Sanjeev Sanyal of Deutsche Bank:

We forecast that world population will peak around 2055 at 8.7 billion and will then decline to 8.0 billion by 2100. In other words, our forecasts suggest that world population will peak at least half a century sooner than the UN expects and that by 2100, and that level will be 2.8 billion below the UN’s prediction. This is obviously a radically different view of the world.

He then quoted Sanyal at greater length:

1. Aging societies will have to adjust soon to the fact that it is not possible for economies to sustain a retirement age in the early sixties. With people routinely living well into their eighties, it will soon be common for people to extend their working life into their mid-seventies…. Societies that cannot make the socio-political adjustment to this new reality will struggle in the 21st century and will unduly burden the shrinking base of young people entering the workforce.

These young people, unable to get work due to that extended work life of the aging, also will be harmed in their ability to gain experience and skills that would be useful to their employers and to their countries. A longer work life, if an economy can make the needed adjustments to continue to incorporate the young at today’s “early” age (i.e., late teens to early 20s), will be able to innovate faster from that deepening experience base.

Unfortunately, the current labor politics makes it difficult to impossible for nations like the US and France even to contemplate extending the age of “full retirement” even for the sake of their respective social security pension plans, much less concern themselves with that waste of a potential for growth in skills from a lengthened work life.

And the problem leaves wholly untouched the shrinking numbers of workers—or any age—to pay into those national social security pension plans.

2. An aging does not imply a boom in retirement homes and an ever expanding medical sector. Yes, there will be more people in their sixties and seventies, but they will largely be fit and working. While there will be some increase in the medical support needed to keep this cohort going, it should not be blindly extrapolated from the past. Meanwhile, as anyone with children will know, falling birth rates will reduce demand for medical care from a high maintenance segment of the population. This implies a change in the mix of medical care rather than a spiraling increase in per capita medical support.

Thus, the main impact of aging will be the extension of active, working adulthood rather than a situation where large portions of the population are living in a prolonged geriatric twilight. In turn, this will impact consumption patterns, urban real estate and even the education system. For instance, university systems will have to be reoriented to deal with middle-aged workers who need to update their skills over a 50-year career or perhaps want to completely change their profession. In contrast, the intake of younger cohorts will ease off due to the shrinking pipeline coming out of secondary schools. This implies a big change in the way education systems are set up.

3. The global demographic shift is not a developed country issue since the shift has been faster for many emerging markets. Russia already has a shrinking workforce and many Latin American countries, contrary to popular belief, have TFRs [Total Fertility Rates, the rate at which child bearing age women actually have children] that are at or below the replacement rate. … The rapid shrinking of China’s workforce from 2020, which is now unavoidable, will have a major impact on the dynamics of the world economy (even allowing for some older workers working longer). As argued in an earlier report in this series, China will transform itself from being the “factory to the world” to becoming the “investor to the world.” This will create opportunities for younger emerging markets like Indonesia, Philippines and, most importantly, India to enter market segments being vacated by China. In turn, they will be followed by even younger countries like Nigeria. Nonetheless, it should be emphasized that demographics alone is not sufficient to generate growth and cannot substitute for sensible policy leadership.

4. Some developed countries may do surprisingly well. The one developed country that stands out in our model is the United States. Even though our population growth projections are more moderate than those of the UN, the US can be expected to continue to enjoy an expanding working-age population till the 2050s (i.e., longer than many emerging economies). Germany’s low birth rate implies a declining population but we feel that it will be much more successful in absorbing immigrants than anticipated by the UN. Thus, its demographic trajectory may not be quite as dire as generally believed.

Crass as it may sound, all the nations will, wit in the lifetimes of our grandchildren, be competing for immigrants for their economic welfare, for their very national security. We’d better lay the groundwork now for encouraging immigration into the US, for making immigration a whole lot easier than it is now. That doesn’t mean we need to compromise our principles—it’s those principles that have acted as such a powerful magnet these past 200 and more years. It’s the mechanics that want, desperately, improvement, not the purpose.